2008 (3) TMI 640 - HC - VAT and Sales Tax

Violation of principle of natural justice - Whether the transporter is liable to pay sales tax if he is not a dealer? If so, to what extent is his liability? - What is the effect of failure on the part of the transporter to account for the goods he is carrying and whether the STO is justified in demanding ₹ 90,152 from the petitioner to avoid seizure of goods and the revisional authority is also justified to uphold such order of the STO? Held that - As per the provisions of sub-section (2) of section 3 of the Entry Tax Act, 1999, any person who brings or causes to be brought into a local area any Scheduled goods on his account or on account of the principal or customer he is liable to pay entry tax. The transporter having caused the entry of goods into the local area of Cuttack is liable to pay entry tax. After giving our thoughtful consideration to the submissions made by the counsel of the respective parties, we are of the view that the STO has not committed any illegality in demanding ₹ 90,152 which he calculated applying the basis indicated in the second proviso to sub-section (5) of section 16D and entry tax leviable on entry of such goods into local area of Cuttack without seizing and confiscating the goods loaded in the vehicle. The revisional authority has rightly upheld such order of the STO. Appeal dismissed.

Issues Involved:
1. Whether the transporter is liable to pay sales tax if he is not a dealer, and to what extent is his liability.
2. The effect of failure on the part of the transporter to account for the goods he is carrying and whether the STO is justified in demanding Rs. 90,152 from the petitioner to avoid seizure of goods, and whether the revisional authority is justified to uphold such order of the STO.

Issue-wise Detailed Analysis:

1. Liability of Transporter to Pay Sales Tax:
The primary contention is whether a transporter, not being a dealer, is liable to pay sales tax. The court clarified that a transporter, who is exclusively engaged in transporting goods and not involved in the business of purchasing or selling goods, is not a dealer under section 2(c) of the OST Act. Therefore, they are not assessable to tax under the Sales Tax Act for the goods they transport. The court emphasized that "dealer" is defined as a person engaged in the business of purchasing, selling, supplying, or distributing goods. The court also referenced constitutional provisions, specifically Entry 54 of List II and Entry 92A of List I of the Seventh Schedule, which authorize the levy of tax only on the sale and purchase of goods.

However, the court noted that under section 16D, every transporter is required to maintain true and correct accounts of goods received for transport, transported, or delivered. The Commissioner has the authority to inspect these goods and records. The court concluded that while a transporter is not liable to pay sales tax, they are required to maintain accurate records and facilitate inspections.

2. Effect of Failure to Account for Goods and Justification of STO's Demand:
The court examined section 16D of the OST Act, which mandates that transporters maintain correct accounts of goods and allows the Commissioner to inspect and seize goods if there is suspicion of tax evasion. The court noted that the STO's actions were based on the suspicion that the transporter was attempting to evade tax by not accounting for the goods properly. The STO issued a show-cause notice to the transporter, who did not provide a satisfactory response, leading to the demand for Rs. 90,152.

The court emphasized that the second proviso to sub-section (5) of section 16D does not impose tax on transporters but provides a basis for computing the amount required to avoid seizure and confiscation of goods. The court noted that this provision ensures that the amount demanded is reasonable and just, based on the tax payable on the goods if assessed in the prescribed manner. The court rejected the petitioner's argument that there was no prescribed manner for assessment, stating that the provision is meant to prevent tax evasion and should not be read narrowly.

The court also addressed the petitioner's claims of violation of natural justice, noting that the petitioner was given opportunities to inspect records and was provided with copies of relevant documents. The court found that the petitioner voluntarily paid the demanded amount to secure the release of the vehicle and goods, indicating acceptance of the STO's actions.

The court concluded that the STO's demand for Rs. 90,152 was justified and that the revisional authority rightly upheld the STO's order. The court dismissed the writ petitions, stating that there was no illegality in the STO's actions.

Conclusion:
The court dismissed the writ petitions, upholding the STO's demand for Rs. 90,152 from the transporter. The court clarified that while transporters are not liable to pay sales tax as dealers, they must maintain accurate records and facilitate inspections to prevent tax evasion. The court found that the STO's actions were justified and in accordance with the law, and there was no violation of natural justice.

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